Calpers raps Bush on Social Security

Privatization bad idea, nation's largest pension fund says

CBSMarketWatch

SAN FRANCISCO (CBS.MW) -- Calpers, the nation's largest public pension fund, said Tuesday it opposes President Bush's proposal for partial privatization of the U.S. Social Security system.

"It is clear that Social Security needs to be reformed, but privatization is not the answer," Rob Feckner, vice president of the California Public Employees' Retirement system board, said in a statement issued by Calpers, which manages $178 billion in assets for 1.4 million state and local government employees.

"It will only lead to higher interest rates on treasury bonds, corporate bonds and mortgage," said Feckner, the chairman of the Calpers board's investment committee. "It will give less retirement stability for workers, and result in higher costs for America's taxpayers."

Bush has made what he calls Social Security reform centerpiece of his second-term economic agenda.

The president has proposed to allow U.S. workers to invest a portion of their Social Security payroll taxes in such retirement accounts in stocks and bonds through IRAs or 401(k)s. His fiscal rationale is that Social Security could begin running a deficit as early as 2018, as increasing numbers of the baby boom generation retire. Bush also has cited his vision of an "ownership society" in which individual Americans, not federal agencies, manage their health care and retirement funds.

Critics that now include Calpers claim the government will have to borrow as much as $2 trillion to replace those lost tax revenues, which would be needed to make guaranteed payments to retirees. Bush hasn't said how he would finance the transition to a partially privatized system.

"Privatizing Social Security is a bad idea," said Sean Harrigan, the outgoing Calpers president. "It is bad from a fiscal perspective because it will contribute $2 trillion to our national budget deficit. It is bad from an investment perspective because defined benefit plans are more prudently managed, produce higher risk-adjusted rates of return and are less costly to administer. And it is bad for retirees because privatized accounts will transfer all of the risk to the participant while jeopardizing their retirement security."

Such a move also would hurt defined benefit plans like Calpers, because top mutual funds can charge twice as much for investment operation expenses, and retail stock funds can charge up to 0.75 percent of every dollar invested while Calpers is limited to 0.25 percent, Mark Anson, Calpers' chief investment officer, said in the statement.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information.
All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only.
Intraday data delayed at least 15 minutes or per exchange requirements.